Two more years of pain for families, says bank boss as Britain limps down ‘long and painful’ road to recovery

Warning: Cash-strapped families face another two years of falling living standards as Britain limps down a 'long and painful' road to recovery, senior Bank of England official Spencer Dale, pictured, has said

Cash-strapped families face another two years of falling living standards as Britain limps down a ‘long and painful’ road to recovery, a senior Bank of England official said yesterday.

Spencer Dale, the central bank’s chief economist, said inflation will not fall back to the 2 per cent target until late 2014 – leaving households, especially pensioners and savers, ‘much worse off’.

Official figures yesterday showed average wages are just 1.8 per cent higher than a year ago – well below inflation of 2.7 per cent.

Mr Dale said that real wages – taking into account the impact of inflation – have fallen by a ‘quite remarkable’ 15 per cent since the financial crisis struck in 2008 as pay rises lagged behind soaring living costs.

But his warning came as the Canadian who will take over at the Bank of England next summer outlined a more aggressive approach to restoring the sickly UK economy to health.

Speaking on Monday night in Toronto, Mark Carney raised the prospect of central banks ditching their inflation targets to focus on growth and jobs.

Mr Carney, who succeeds Sir Mervyn King as governor on July 1, stressed that he was not talking about his plans for the Bank of England, but it provoked a furious response from over-50s group Saga amid fears that taking a more relaxed view of inflation would hit pensioners who rely on fixed incomes.

Ros Altmann, director of Saga, said: ‘If he thinks that making inflation even higher will help growth then he is looking down the wrong end of the telescope. It is a stealth tax on consumers, savers and those living on fixed incomes.’

Gloomy: Official figures yesterday showed average wages are just 1.8 per cent higher than a year ago - well below inflation of 2.7 per cent. The Bank of England is pictured

Inflation has been above 2 per cent since late 2009 and the Bank does not expect it to fall below target until the second half of 2014.

Adam Posen, a former member of the MPC, urged the government to look at alternative ways to stimulate the economy - and ditch the ‘misguided priorities of deficit reduction’.

He said: ‘For two-and-a-half years the government’s economic policies have focused on the wrong narrow goal, been self-defeating in pursuit of that goal and in so doing have eaten away at British economic capabilities and confidence.

‘Their policies have left the British economy malnourished, and indeed made parts of it quite ill. There are alternatives available, and the British government should switch to these now.’